Government should act to boost tech giants’ tax

Last April, days before a report in the US Senate exposed Apple’s disappearing tax bill, the Australian Taxation Office rang the alarm bells with a paper that argued for “the need to take immediate action to protect the integrity of the tax system”.

It’s a key phrase the Tax Office has historically used to signal a crisis that requires extraordinary measures to address, from bottom of the harbour schemes to Operation Wickenby.

The paper focused on the elaborate means that multinationals are using to ensure they escape paying tax anywhere, and how that threatens ATO revenue.

Australia’s leadership of the G20 was supposed to highlight the need to tackle base erosion and profit shifting – but little was said about it in public at last week’s finance leaders’ summit.

graphicThe great difficulty is that most governments and tax agencies around the world don’t actually know how much money tech giants such as Apple, Google, Microsoft and Facebook actually make from local taxpayers.

“We’re dependent on what Google and the rest of them tell us,” says one government figure. And what Apple and Google choose to share turns out to be not much at all.

While Apple was forced to divulge information to the US Senate’s Permanent Subcommittee of Investigation, when Australian and British politicians did the asking last year, they extracted almost nothing.

There’s a debate to be had over how much tax the tech giants should or shouldn’t pay. But the first step in that is a campaign for transparency.

At last month’s G20 meeting, OECD tax boss Pascal Saint Amans argued that companies should be required to reveal how much they earn in tax havens such as Ireland.

Apple Australia paid just 0.7 per cent of its turnover as tax here – but the reality is, that’s high by Apple’s international standards.

Apple doesn’t even say what its British sales are, in its British filings. And its three major British operating companies together paid no tax at all there last year.

The mystery company

In Australia, Apple Sales International – the mystery company that charges for Apple’s premium for intellectual property and intangibles for sales outside the US – was forced to file financial returns from 2000 to 2009.

As a registered foreign company doing business here, Apple Sales International was caught by Section 601CK of Australia’s Corporations Act.

Apple Australia was acting as ASI’s local agent.

It’s not clear why ASI stopped filing in 2009, but it coincided with the opening of Apple stores and the diversion of the Australian revenue through Singapore en route to Ireland.

The question must be why Apple’s rivals, such as Google, were not also caught by Section 601CK.

Google says its business does not take place in Australia. But the mechanics of the payments clearly do. Google is a foreign company acting as an agent here. Good tax policy begins with good information. Enforcing Section 601CK – or extending it to cover the loopholes that tech companies use – is an obvious place for the government to start.